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Due to the ongoing shortage of hard currency, companies in the manufacturing sector have recently been authorized to import the badly needed raw material for their production plants using supplier’s credit scheme.
This scheme was only allowed to export oriented investments through a permit from the National Bank of Ethiopia.
Now, firms whose mother company is foreign based, even if they are not export-oriented are allowed to benefit from this scheme to import their raw materials so that they continue producing.
Suppliers’ credit guarantees are guarantees issued by a commercial bank to provide security to a local or foreign supplier/beneficiary on behalf of a local customer, representing a commitment on the part of the bank to meet any claims to be made by the beneficiary, in case the debtor (local buyer) fails to repay in accordance with the terms and conditions of the contract.
According to NBE’s Directive for Amendment of External Loan and Suppliers Credit Directive supplier’s credit means an interim short term financing provided by a third party supplier. The directive also states that an exporter and a domestic investor who are engaged in export-oriented investments are eligible for an external loan or supplier’s credit provided that the acquired loan is going to finance the export-oriented investment.
However, “the supplier’s credit scheme is a risky business, but we have no choice. We have to use this to continue production,” said one manufacturer, who is using this scheme for the last few months.
“The supplier’s credit will need to be paid back in 180 and 360 days after placing an order, this will also affect us as it takes from two to three months for the raw material to reach here,” added the manufacturer.
Meanwhile, experts say this unfortunately will affect local manufacturing companies with no access to such credit and that are queuing for access to foreign exchanged through Letter of Credit.
These local manufacturing companies feel that as National Bank of Ethiopia eased the procedure to acquire suppliers’ credit to those companies that have subsidiaries in foreign countries, they will be able to remain afloat while they will be forced to go out of business as they have no way of acquiring raw materials for their products.
Experts in the finance sector also indicated that such loans can be insured. The suppliers providing the credit supply would pay a premium to be insured which may affect the price.
Insurance firms such as the African Trade Insurance Agency (ATI) usually insure such kind of arrangements, say these experts. ATI is a pan-African institution established by African governments and AfDB to support and encourage inter-African trade. It provides risk solutions to companies, investors, and lenders interested in doing business in Africa. ATI recently elected Dr. Yohannes Ayalew as their new Chairman. Yohannes is currently the Vice Governor and Chief Economist of National Bank of Ethiopia.